CIT Vs. SUNBEAM AUTO LTD.

JUDGEMENT

(1.) THESE are eight appeals filed by the Revenue and they relate to the assessment years 2000 -01, 2002 -03 to 2006 -07 and 2008 -09. We may take ITA No.351/2012 which relates to the assessment year 2004 -05 as the lead matter. The assessee is engaged in the manufacture of die -casted components for automotive manufactures that is, two wheelers and four wheelers. For manufacturing these components specific moulds are required according to the design and physical properties. The manufacturing process and the parameters are accordingly decided. The assessee has in -house moulds manufacturing facility. In case the in -house facility is not able to fulfill the requirements, the moulds are purchased from outside. The requirement of moulds is very high having regard to the number of components produced by the assessee. The moulds have to withstand very high pressure molten metal which is poured inside the cavity in the mould in temperature ranging 700 degree Celsius. Due to constant use of the dies and moulds, they are subject to heavy wear and tear.

(2.) HAVING regard to the nature of the dies and moulds as stated above, it was the practice of the assessee to debit the expenditure incurred on account of replacement of the moulds and dies to the profit and loss account as revenue expenditure. The Assessing Officer took the view that the expenditure was capital in nature since the moulds and dies conferred an enduring benefit upon the assessee. He further noted that the assessee was incurring heavy expenditure on repairs to plant and machinery and was also claiming substantial amount of depreciation. According to him the claim of the assessee that the moulds and dies are allowable as revenue expenditure was not bona fide as it had been claimed in addition to the heavy repair expenditure and depreciation relating to the plant and machinery. He observed that the claim for deduction of the expenditure on account of replacement and moulds and dies was not guided by any commercial expediency. In this view of the matter he held that the expenditure brought an enduring advantage to the assessee and therefore disallowed the same as capital in nature.

(3.) THE revenue carried the matter in appeal before the Tribunal which held that the moulds and dies do not have any longevity and therefore they have to be replaced frequently. Such replacement only ensured production of the same quality of parts. They have to be made by the assessee in -house on the basis of specific orders by car and motorcycle manufacturers and when their life is exhausted they have to be destroyed in order to prevent misuse or fakes. The Tribunal felt that in these circumstances the assessee had not obtained any enduring advantage. The expenditure was therefore directed to be allowed as revenue expenditure.